Caisse des Dépôts et Consignations (CDC), the French government investment company, started exploring the blockchain space in 2015. Since then, Nadia Filali has led the organization’s Blockchain and Crypto-asset division. During that time, the CDC has been involved in some of the highest profile blockchain projects in France, which have informed Filali’s views on the tokenization of financial assets.
Nadia Filali will be speaking next week at the European Blockchain Convention on a panel entitled “The Tokenization of Financial Assets is Finally Here. Are you ready?”
The convention will be streamed online from April 12 – 16 exploring the latest innovations, implementations, & strategies for using blockchain in business. Use the code LEDGER25 to get a 25% ticket discount.
On the one hand, Filali is a blockchain evangelist and sees the benefits of tokenizing digital assets in terms of pure efficiencies, never mind the potential for new business models. Nonetheless, there are hurdles. The issues include:
- A need to develop liquid markets
- The impact on incumbents
- Grey areas in legislation
- A lack of understanding at senior levels.
The need for liquidity
Filali highlighted the efficiency gains from security tokens because the end-to-end process is executed on a blockchain in real-time. This removes the counterparty risks from a typical two-day settlement and a significant chunk of intermediary costs. All the parties no longer need to spend time reconciling with each other.
The ability to tokenize and raise funding for SMEs is a big attraction. “We don’t have many people who are willing to take a risk to invest in some SMEs. If you explain that you can invest in SMEs but take only a small part of the risk, it could be interesting,” said Filali. She added that there is liquidity because the SME stockholder can transfer their token.
However, for now, that liquidity is theoretical. The CDC is an investor, is internally exploring the opportunity within its financial business, and by launching Liquidshare. “But they won’t adopt new technological infrastructures if there is no market,” said Filali.
She continued, “It is one of the problems of the development of the security token (sector) for the moment. We’ve seen some experimentation. We know it works. But the CIBs (commercial banks) will not change the way they work if there is no volume.” Ledger Insights recently wrote about an initiative that aims to create more volume for regulated security token platforms through interoperability.
But distribution and liquidity are not the only hurdles. The other is disruption.
The impact on intermediaries
In a future where blockchain is the single source of truth for securities ownership, there’s a big question mark over the need for some of the intermediaries. Beyond legal requirements, is there still a need for a central securities depository (CSD) for listed securities? The role of custodians evolves to a technical one, and securities services are transformed or automated.
“I think the message is that we should not act in reaction or fear,” said Nadia Filali. “It’s always difficult to change things because there’s an impact on the old industry. It’s not really neutral.”
She noted the importance of not blocking innovation. “If they see that it’s more efficient and could be better for the investor in the end, we will go that way. And there is a real opportunity to take the lead in innovation in Europe to develop an industry and standards consistent with our needs and values,” said Filali.
France was ahead of the curve when it comes to blockchain regulation. Back in 2017, it changed its laws to allow blockchain to act as a securities registry, referred to as DEEP. However, technically this only applies to unlisted securities. The French regulator pointed out that current European regulation doesn’t allow full…